Suppose an Expansionary Gap Is Closed in the Long Run

question 8

Multiple Choice

Suppose an expansionary gap is closed in the long run.How will nominal GDP and real GDP be affected?  

• A) Nominal GDP will decline, and real GDP will decline. 
• B) Nominal GDP will increase, and real GDP will increase. 
• C) Nominal GDP will increase, but real GDP will decline. 
• D) Nominal GDP will decline, but real GDP will increase.

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Definitions:

Marginal Productivities

Describes the additional output generated by employing one more unit of input, holding other inputs constant.

Higher Earnings

Increased income from wages, salaries, investments, or other sources, typically compared to a previous period or average.

Better-Educated

Referring to individuals who have received a higher level of formal education, often resulting in improved skills, knowledge, and job opportunities.

Human-Capital Theory

A theory that views individuals' skills and knowledge as valuable assets that can enhance their productivity and income.